I've heard that you should invest for retirement in the following order:
- 401k with employee match
- Roth IRA, until you hit the max
- Rest of your 401k
I was curious however. The money for a 401k comes from your pretax income, and you have to pay taxes when you withdraw it. The money for a Roth comes from your post-tax income, but you can withdraw it tax-free at retirement. (I am assuming this is the largest difference between the two, for money that is set aside for retirement).
It seems like it would be better to start with a larger base of money and grow that (e.g. the pre-tax option), paying taxes later, than it would be to pay now and withdraw later without any taxes. What makes the most sense?